EUR/USD: Growing monetary policy differential - RBS

FXStreet (Bali) - There is a more clear divergence in fundamentals between the Euro and the US Dollar, which should ultimately push the pair lower, notes Brian Daingerfield, FX Trading Strategist, and David Simmonds, Head of Currency and EM Strategy, both working for RBS.

Key Quotes

"Medium-term EUR/USD downside on, among other things, a growing monetary policy differential between the US Fed and the ECB is coming into focus. Aside from broader geopolitical risks, US CPI next week is the major event in the US."

"Any further upside could complicate the Fed’s delicate process of credibly maintaining its dovish communication while shifting to a more wholly data dependant approach."

"This shift to data dependence is likely a USD positive development and may be coming perhaps as soon as the September FOMC decision."

"Meanwhile, the ECB is set to expand its balance sheet in September via tLTROs. A break through the 2014 low 1.3477 may see an extension lower."

"On the EUR calendar, preliminary PMIs for July are release. We anticipate the PMIs will likely remain supportive of the ECB’s baseline of moderate expansion in output."